Full metal smack it

It’s a broad based sell-off across Europe as dealers are worried about the currency crisis in Turkey, and the cooling of Chinese growth.

Europe

European banks have lost ground today as investors are concerned the financial problems in Turkey could spread to the eurozone. Natural resource stocks like BHP Billiton, Rio Tinto, Randgold Resources and Glencore are all lower on the session as metals are under severe pressure. Copper, Platinum and Palladium are weaker as traders are concerned the Chinese economy is cooling, and yesterday’s disappointing fixed asset investment and industrial production reports from Beijing confirmed their fears. The renminbi has been steadily losing ground versus the US dollar since March and it’s near its all-time-low, and that sums up the cautious sentiment surrounding China.

Balfour Beatty proved that their turnaround plan is working well as the firm revealed a 69% jump in first-half operating profit. Revenue slipped as the company is slimming down and being more selective about what projects it takes on, but higher margins and lower costs drove up profits. The group confirmed they are either achieving industry standard margins or they will be in the second-half. The UK government has a lot of infrastructure projects in the pipeline, and this is likely to be beneficial for the firm. Balfour upped its interim dividend by 33%, and said it is on track to achieve its full-year target. The stock has been broadly moving higher for the past year, and if the bullish move continues it could target 310p.

RBS’s shares got off to a positive start this morning after the bank confirmed it will pay an interim dividend of 2p – it will be the first dividend since the credit crisis. RBS is to pay a $4.9 billion fine to the US department of justice for misconduct before the credit crisis. The finance house conditionally said it would pay an interim dividend earlier this month, but the stock has been slipping since then. According to the Financial Conduct Authority, RBS is the least UK least popular bank, as it finished last in both personal and business banking surveys. The stock has been in decline since May, and if the negative move continues it could target the 225p region.

US

Equity markets are firmly lower as traders on Wall Street are also alarmed about the state of geopolitics. The slowdown in the Chinese economy is the main driver of the decline in the US. No doubt President Trump will view the slump in Chinese stocks and the renminbi as further proof that the US is winning the trade war. Mr Trump isn’t a man to go easy on his opponents, and it is likely he will keep his tough stance against Beijing.

Tencent, a Hong Kong listed Chinese tech company posted disappointing figures after the Asian markets were shut, and this fuelled fears in The West that China’s economy is slowing down. The company’s revenue and profit both missed forecasts. Alibaba shares are in the red as the China related sell-off has gripped investors.

Retail sales jumped by 0.5% in July, which comfortably topped the 0.1% expected by economists. It is worth noting, that the June report was revised lower to 0.2% from 0.5%, so the update wasn’t as positive as initially thought.

FX

The US dollar index hit its highest level in over 13 months as traders flock to assets that they feel are lower risk. The Turkish lira crisis has triggered selling of other emerging market currencies, and funds are flowing into the US dollar.

EUR/USD has been hurt by the rally in the US dollar and it remains in a downward trend. Turkish banks have some of their loans denominated in euros and dealers are worried they could default. Some eurozone banks are also large shareholders in Turkish banks, and that is also playing on traders’ minds.

GBP/USD has been dragged lower by the firmer US dollar. The pound enjoyed a short-lived push higher on the back of the UK inflation report. The CPI level ticked up to 2.5% - meeting expectations, but the news couldn’t hold back the surge in the greenback. If the decline in the pound continues it could target 1.2590.

Commodities

Gold has fallen to its lowest level in over 18 months as the rally in the greenback continues to hurt the metal. Gold has been losing ground since April and it appears the pace at which it is falling is increasing. Should we see a break below the $1,175 region, the metal might target $1,150.

WTI and Brent crude oil sold-off sharply after the latest Energy Information Administration report showed an enormous build in US oil stockpiles. US oil inventories were 6.8 million barrels, while traders were anticipating a drop of 2.5 million barrels.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Investing in CMC Markets derivative products carries significant risks and is not suitable for all investors. You could lose more than your deposits. You do not own, or have any interest in, the underlying assets. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Spreads may widen dependent on liquidity and market volatility.

The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs.

CMC Markets NZ Limited Company Registration Number 1705324 (the product issuer) provides the financial products and/or services. It's important for you to consider the relevant Product Disclosure Statement ('PDS') and any other relevant CMC Markets Documents before you decide whether or not to acquire any of the financial products. Our Financial Services Guide contains details of our fees and charges. All of these documents are available at cmcmarkets.co.nz or you can call us on 0800 26 26 27.

Apple, iPad, and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.